1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1998.
Commission File Number 0-24699
-------
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 62-1742957
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
209 Tenth Avenue South, Suite 300
Nashville, TN 37203
and
One Kendall Square, Building 200
Cambridge, Massachusetts 02139
(Address of principal executive offices)
(615) 256-9915
(617) 577-8020
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ].
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date: 11,196,993 shares of common
stock, $.01 par value, at August 11, 1998.
2
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
FORM 10-Q
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
A. Consolidated Balance Sheet at June 30, 1998
and December 31, 1997 (Unaudited) 3
B. Consolidated Statement of Income for the Three and
Six Months ended June 30, 1998 and 1997 (Unaudited) 4
C. Consolidated Statement of Cash Flows for the Six Months
ended June 30, 1998 and 1997 (Unaudited) 5
D. Notes to Consolidated Financial Statements (Unaudited) 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 16
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 17
ITEM 2. Changes in Securities and Use of Proceeds 17
ITEM 3. Defaults Upon Senior Securities 17
ITEM 4. Submission of Matters to a Vote of Security Holders 17
ITEM 5. Other information 17
ITEM 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
-2-
3
ITEM 1A
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands except share data)
(unaudited)
June 30, December 31,
1998 1997
-------- ------------
ASSETS
Current Assets
Cash and cash equivalents $ 27,529 $ 25,384
Restricted cash - 176
Accounts receivable, net 10,161 9,003
Prepaid expenses and other current assets 2,198 2,605
Deferred income taxes 3,085 3,767
-------- --------
Total current assets 42,973 40,935
Fixed assets, net 25,865 21,232
Deferred charges, net 1,224 692
Goodwill and other intangibles, net 11,246 11,280
Deferred income taxes 2,987 1,945
Other assets 727 549
-------- --------
TOTAL ASSETS $ 85,022 $ 76,633
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long term debt and
obligations under capital leases $ 80 $ 80
Accrued expenses and accounts payable 16,286 14,648
Deferred revenue 6,753 5,077
Amounts held in escrow - 176
Income taxes payable 800 753
Other 671 909
-------- --------
Total current liabilities 24,590 21,643
Long term debt and obligations under capital leases 662 703
Accrued rent 1,597 1,519
Other long term liabilities 3,184 2,771
Deferred revenue, net of current portion 3,319 3,335
-------- --------
Total liabilities 33,352 29,971
-------- --------
Stockholders' equity
Common Stock $.01 par value, 30,000,000 shares authorized,
11,185,000 and 10,853,000 shares issued and outstanding
at June 30, 1998 and December 31, 1997, respectively 112 109
Additional paid in capital 63,465 60,543
Accumulated deficit (11,907) (13,990)
-------- --------
Total stockholders' equity 51,670 46,662
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 85,022 $ 76,633
======== ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
-3-
4
ITEM 1B
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share data)
(unaudited)
Three months ended Six months ended
June 30, June 30,
------------------------ -------------------------
1998 1997 1998 1997
-------- -------- -------- --------
Revenue $ 52,307 $ 42,136 $101,175 $ 81,472
Cost of services 44,983 36,367 87,003 70,044
-------- -------- -------- --------
Gross Profit 7,324 5,769 14,172 11,428
Selling, general and administrative 4,802 3,912 9,352 7,723
Amortization 296 332 534 606
Transaction costs - 543 - 543
-------- -------- -------- --------
Income from operations 2,226 982 4,286 2,556
Net interest income (expense) 338 (102) 618 (256)
-------- -------- -------- --------
Income before income taxes 2,564 880 4,904 2,300
Income tax provision 1,047 395 2,012 1,013
-------- -------- -------- --------
Net income before preferred
stock dividends and accretion on
redeemable common stock 1,517 485 2,892 1,287
Preferred stock dividends - 275 - 549
-------- -------- -------- --------
Net income available to common
stockholders $ 1,517 $ 210 $ 2,892 $ 738
======== ======== ======== ========
Earnings per share - basic $ 0.14 $ 0.08 $ 0.26 $ 0.29
======== ======== ======== ========
Weighted average number of
common shares - basic 11,148 2,555 11,044 2,552
======== ======== ======== ========
Earnings per share - diluted $ 0.12 $ 0.06 $ 0.23 $ 0.16
======== ======== ======== ========
Weighted average number of common
and common equivalent shares - diluted 12,512 8,266 12,422 8,263
======== ======== ======== ========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
-4-
5
ITEM 1C
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Six Months ended June 30,
-------------------------
1998 1997
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,892 $ 1,287
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,936 1,451
Gain on disposal of fixed assets (25) (19)
Deferred income taxes (360) (963)
Decrease in goodwill from utilization of tax asset -- 737
acquired tax benefit
Changes in assets and liabilities:
Accounts receivable, trade (1,158) (416)
Prepaid expenses and other current assets 583 543
Accounts payable and accrued expenses 1,638 764
Income taxes payable 1,281 422
Deferred revenue 1,660 (171)
Accrued rent 78 (60)
Other current and long-term liabilities (1) 1,321
-------- -------
Total adjustments 5,632 3,609
-------- -------
Net cash provided by operating activities 8,524 4,896
-------- -------
Cash flows from investing activities:
Additions to fixed assets, net of acquired amounts (6,068) (4,197)
Proceeds from disposal of fixed assets 66 43
(Increase) decrease in deferred charges (532) 854
Increase in other assets (178) (20)
Payment for acquisitions (508) --
-------- -------
Net cash used in investing activities (7,220) (3,320)
-------- -------
Cash flows from financing activities:
Purchase of treasury stock (1,133) --
Proceeds from issuance of common stock 2,015 151
Principal payments of long term debt and
obligations under capital leases (41) (1,116)
Borrowing of long term debt and capital leases -- 244
-------- -------
Net cash provided by (used in) financing activities 841 (721)
-------- -------
Net increase in cash and cash equivalents 2,145 855
Cash and cash equivalents, beginning of period 25,384 8,059
-------- -------
Cash and cash equivalents, end of period $ 27,529 $ 8,914
======== =======
Non cash financing activities:
Tax benefit related to the exercise of stock options $ 1,234 --
======== =======
The accompanying notes to consolidated financial statements are an integral
part of these statements.
-5-
6
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
ITEM 1.D. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The Company and Basis of Presentation
Organization
Bright Horizons Family Solutions, Inc. (the "Company") was incorporated on
April 27, 1998, and commenced substantive operations upon completion of the
merger by and among Bright Horizons, Inc. ("BRHZ") and CorporateFamily
Solutions, Inc. ("CFAM") on July 24, 1998. The merger has been accounted
for under the pooling of interests method of accounting and the
accompanying financial statements of the Company reflect the restated
combined financial statements of the entities. Revenues and net income for
each of the entities for the six months ended June 30, 1998 were as
follows:
CorporateFamily
Bright Horizons, Inc. Solutions, Inc. Combined
--------------------- ---------------- --------
Revenues $57,393 $43,782 $101,175
======= ======= ========
Net income $ 1,731 $ 1,161 $ 2,892
======= ======= ========
The Company had previously announced its combined results for the month of
July which includes seven days of post merger activity.
The Company provides workplace services for employers and families
including child care, early education and strategic worklife consulting
throughout the United States. The Company receives tuition revenue from
parents and management fees from corporate sponsors for its childcare
services.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
The accompanying financial statements have been prepared by the Company in
accordance with the accounting policies described in the audited financial
statements of BRHZ and CFAM, its wholly owned subsidiaries, for the years
ended June 30, 1997 and January 2, 1998, respectively, included in the
Company's Registration Statement on Form S-4 dated June 17, 1998
(Registration No. 333-57035), and should be read in conjunction with the
notes thereto.
-6-
7
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
The Company reports operating results on a calendar year basis. BRHZ had a
fiscal year ending June 30, and CFAM had a fiscal year ending on the Friday
closest to December 31. The accompanying financial statements include six
month operating results for BRHZ for the periods ended June 30, 1998 and
1997, and six month operating results for CFAM for the periods ended July
3, 1998 and June 27, 1997.
In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of
only normal, recurring accruals) which are necessary to present fairly its
financial position as of June 30, 1998 and the results of its operations
and cash flows for the three month and six month periods ended June 30,
1998 and 1997. The results of operations for interim periods are not
necessarily indicative of the operating results to be expected for the full
year.
2. Earnings Per Share
The computation of net income per share is based on the weighted average
number of common shares and common equivalent shares outstanding during the
period. Common equivalent shares include stock options, warrants and
preferred stock, and are determined using the modified treasury stock
method.
Statement of Financial Accounting Standards No. 128, "Earnings per Share",
("SFAS 128"), has been issued effective for fiscal periods ending after
December 15, 1997. SFAS 128 established standards for computing and
presenting earnings per share.
The following tables present information necessary to calculate earnings
per share for the three and six month periods:
Three months ended June 30, 1998
-----------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic earnings per share:
Income available to common shareholders $ 1,517,000 11,148,000 $ 0.14
=========
Effect of dilutive securities:
Options and warrants -- 1,364,000
-------------- ----------
Diluted earnings per share $ 1,517,000 12,512,000 $ 0.12
============== ========== =========
-7-
8
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
Three months ended June 30, 1997
---------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
Basic earnings per share:
Income available to common shareholders $ 210,000 2,555,000 $ 0.08
=========
Effect of dilutive securities:
Options and warrants -- 968,000
Convertible preferred stock 275,000 4,743,000
------------ ---------
Diluted earnings per share $ 485,000 8,266,000 $ 0.06
============ ========= =========
Six months ended June 30, 1998
------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- ----------
Basic earnings per share:
Income available to common shareholders $ 2,892,000 11,044,000 $ 0.26
=========
Effect of dilutive securities:
Options and warrants -- 1,378,000
-------------- ----------
Diluted earnings per share $ 2,892,000 12,422,000 $ 0.23
============== ========== =========
Six months ended June 30, 1997
-----------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
Basic earnings per share:
Income available to common shareholders $ 738,000 2,552,000 $ 0.29
========
Effect of dilutive securities:
Options and warrants -- 968,000
Convertible preferred stock 549,000 4,743,000
------------ ---------
Diluted earnings per share $ 1,287,000 8,263,000 $ 0.16
============ ========= ========
-8-
9
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
3. Subsequent Event
On April 26, 1998, BRHZ and CFAM entered into a definitive Agreement and
Plan of Merger (the "Merger Agreement"). Pursuant to the agreement, BRHZ
and CFAM have merged (the "Merger") with subsidiaries of the Company and
are now wholly owned subsidiaries of the Company. The Merger was approved
by a vote of shareholders of BRHZ and CFAM on July 24, 1998, and is to be
treated as a tax free reorganization and to be accounted for as a pooling
of interests. In the Merger, each share of BRHZ common stock ("BRHZ Common
Stock"), was exchanged for 1.15022 shares of the Company's common stock,
$0.01 par value per share ("Common Stock"), and each share of CFAM common
stock ("CFAM Common Stock") was exchanged for one share of Common Stock.
All historical amounts have been restated to reflect the respective
exchange ratios, and certain reclassifications have been made for
consistent presentation, which had no effect on net income. Each
outstanding option to purchase shares of BRHZ Common Stock and CFAM Common
Stock has been converted into an option to purchase shares of BFAM Common
Stock at the same conversion ratios referenced above. Results of operations
in the accompanying financial statements do not include merger and
integration costs estimated to be $7.5 million, which will be reflected as
expenses in the third quarter of 1998.
4. Sales of Common Stock
In August 1997, CFAM completed an initial public offering of 2,702,500
shares of CFAM Common Stock, of which 1,401,386 shares were issued and sold
by CFAM at a public offering price of $10.00 per share. CFAM received net
proceeds of approximately $12.1 million (after deducting underwriting
discounts and expenses). Approximately $3.7 million was used to repay all
of CFAM's then outstanding bank borrowings. In connection with the initial
public offering, CFAM effected a .65 to 1 reverse stock split. Accordingly,
all references in the accompanying financial statements to common share or
per common share information have been restated to reflect the reverse
stock split. Additionally, as a result of the initial public offering, all
1,125,000 shares of CFAM's issued and outstanding Series A preferred stock
were converted into 1,169, 935 shares of CFAM Common Stock.
In November, 1997, BRHZ completed an initial public offering of 3,415,500
shares of BRHZ Common Stock, of which 1,350,000 shares were issued and sold
by BRHZ and 2,065,500 of which were sold by selling shareholders, at an
offering price of $13.00 per share. BRHZ received net proceeds of
approximately $15.6 million (after deducting underwriting discounts and
expenses). Approximately $4.0 million was used to repay outstanding debt.
In connection with the initial public offering, BRHZ effected a .33 to 1
reverse stock split. Accordingly, all references in the accompanying
financial statements to common share or per common share information have
been restated to reflect the reverse stock split.
In connection with the offering, all outstanding shares of BRHZ's Series A,
Series B and Series C Mandatorily Redeemable Convertible Preferred Stock
(collectively, the "Convertible Preferred Stock") were converted into an
aggregate of 3,100,512 shares of BRHZ Common Stock, and outstanding
warrants, which otherwise would have expired upon the closing of the
offering, were converted into 303,924 shares of BRHZ Common Stock. The
Convertible Preferred Stock was initially recorded at fair value. From the
date of issuance to the date of the
-9-
10
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
mandatory redemption for BRHZ Common Stock, $9.1 million in accretion
and dividends were recorded as charges to retained earnings and
as increases to the carrying value of preferred stock. Upon the redemption
of these securities for BRHZ Common Stock, the carrying value of the
Convertible Preferred Stock was recorded as a credit to common stock and
paid-in capital. Redeemable common stock issued in connection with an
acquisition was also converted to BRHZ Common Stock in connection with the
BRHZ initial public offering.
The Company intends to use the balance of the net proceeds from both the
offerings for working capital and general corporate purposes, including the
merger and integration of the operations of BRHZ and CFAM, and financing of
potential acquisitions and new centers currently under development.
In the quarter ended June 30, 1997, BRHZ incurred costs of $543,000
associated with a public offering of securities. Because the offering was
delayed, the amounts incurred were treated as a period cost.
-10-
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
When used in this discussion, the words "believes," "anticipated" and
similar expressions are intended to identify forward-looking statements.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate and therefore, such statements are subject
to certain risks and uncertainties which could cause actual results in the
future to differ materially from those projected. See "Risk Factors"
included in the Registration Statement on Form S-4 dated June 17, 1998
(Registration No. 333-57035) and incorporated herein by reference for a
description of a number of risks and uncertainties, which could affect
actual results. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect
certain events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
RECENT DEVELOPMENTS
On April 26, 1998, the Company entered into the Merger Agreement and, in
accordance with its terms, as subsequently amended on June 17, 1998. BRHZ
and CFAM formed Bright Horizons Family Solutions, Inc. a Delaware
corporation (the "Company"). Each issued and outstanding share of BRHZ
Common Stock was converted into 1.15022 shares of Common Stock and each
issued and outstanding share of CFAM Common Stock was converted into one
share of Common Stock. Each outstanding option of BRHZ and CFAM was
converted into an option to purchase shares of Common Stock at the same
conversion ratios referenced above. The merger was completed on July 24,
1998. The transaction will be accounted for as a pooling of interests and
tax-free reorganization.
All historical equity amounts have been restated to reflect the respective
exchange ratios, and certain reclassifications made for consistent
presentation, which had no effect on net income.
General
The Company provides workplace services for employers and families,
including childcare, early education and strategic worklife consulting,
operating 262 child development centers at June 30, 1998. The Company
serves more than 31,000 families in 35 states and the District of Columbia
and has partnerships with many of the nation's leading employers, including
68 Fortune 500 companies. Working Mother's 1997 list of the "100 Best
Companies for Working Mothers" includes 40 clients of the Company.
Historical revenue growth has been primarily due to the addition of new
child development centers as well as increased
-11-
12
enrollment at existing centers. The Company reports its operating
results on a calendar year basis.
The Company's business is subject to seasonal and quarterly fluctuations.
Demand for child development services has historically decreased during the
summer months. During this season, families are often on vacation or have
alternative child care arrangements. Demand for the Company's services
generally increases in September upon the beginning of the new school year
and remains relatively stable throughout the rest of the year. Results of
operations may also fluctuate from quarter to quarter as a result of, among
other things, the performance of existing centers, the number and timing of
new center openings and/or acquisitions, the length of time required for
new centers to achieve profitability, center closings, refurbishment or
relocation, the sponsorship model mix of new and existing centers, the
timing and level of sponsorship payments, competitive factors and general
economic conditions.
RESULTS OF OPERATIONS
The following table sets forth statement of operations data as a percentage
of net revenues for the periods ending June 30, 1998 and 1997:
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of services 86.0 86.3 86.0 86.0
----- ----- ----- -----
Gross profit 14.0 13.7 14.0 14.0
Selling, general & administrative 9.2 9.3 9.2 9.5
Amortization 0.5 0.8 0.5 0.7
Transaction costs 0.0 1.3 0.0 0.7
----- ----- ----- -----
Income from operations 4.3 2.3 4.3 3.1
Net interest income (expense) 0.6 (0.2) 0.6 (0.3)
----- ----- ----- -----
Income before income taxes 4.9 2.1 4.9 2.8
Income tax provisions 2.0 0.9 2.0 1.2
----- ----- ----- -----
Net income 2.9% 1.2% 2.9% 1.6%
===== ===== ===== =====
-12-
13
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
Three and Six Months Ended June 30, 1998 Compared to the Three and Six
Months Ended June 30, 1997
Net Revenues. Net revenues increased $10.2 million, or 24.1%, to $52.3
million for the three months ended June 30, 1998 from $42.1 million for the
three months ended June 30, 1997. Net revenues increased $19.7 million, or
24.2%, to $101.2 million for the six months ended June 30, 1998 from $81.5
million for the six months ended June 30, 1997. The growth in revenues is
primarily attributable to the net addition of 35 child development centers
since June 30, 1997 and tuition increases at existing centers of
approximately 3% to 4%.
Gross Profit. Cost of services consists of center operating expenses,
including payroll and benefits for center personnel, facilities costs
including depreciation, supplies and other expenses incurred at the center
level. Gross profit increased $1.6 million, or 27.0%, to $7.3 million for
the three months ended June 30, 1998 from $5.8 million for the three months
ended June 30, 1997. As a percentage of net revenues, gross profit
increased to 14.0% for the three months ended June 30, 1998 compared to
13.7% for the same period in 1997. Gross profit increased $2.7 million, or
24.0%, to $14.2 million for the six months ended June 30, 1998 from $11.4
million for the six months ended June 30, 1997. As a percentage of net
revenues gross profit was 14.0% for the six months ended June 30, 1998 and
1997.
The Company showed a modest increase in average gross profit margins for
the second quarter of 1998 compared to the second quarter of fiscal 1997 as
a result of a greater proportion of centers achieving mature operating
levels, as well as strong enrollment in newer family centers, partially
offset by higher depreciation associated with renovations at a number of
older centers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist of regional and district management
personnel, corporate management and administrative functions, and marketing
and development expenses for new and existing centers. Selling, general and
administrative expenses increased $890,000, or 22.8%, to $4.8 million for
the three months ended June 30, 1998 from $3.9 million for the three months
ended June 30, 1997. As a percentage of net revenues, selling, general and
administrative expenses decreased to 9.2% for the three months ended June
30, 1998 from 9.3% for the same 1997 period. Selling, general and
administrative expenses increased $1.6 million, or 21.1%, to $9.4 million
for the six months ended June 30, 1998 from $7.7 million for the six months
ended June 30, 1997. As a percentage of net revenues, selling, general and
administrative expenses decreased to 9.2% for the six months ended June 30,
1998 from 9.5% for the six months ended June 30, 1997.
The decrease in selling and general administrative expenses as a percentage
of revenue during the first six months of this year is primarily
attributable to a larger revenue base and increased efficiencies. The
dollar increase is primarily attributable to investments in regional
management, sales personnel, and communications personnel necessary to
support long term growth.
-13-
14
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
Income from Operations. Income from operations increased 126.7%, or $1.2
million, to $2.2 million for the three months ended June 30, 1998 from $1.0
million for the three months ended June 30, 1997. Excluding transaction
costs occurring in 1997 (see Note 4 to the financial statements), operating
income for the three months ended June 30, 1998 would have increased
$701,000, or 46.0%, from $1.5 million for the three months ended June
30,1997. Income from operations increased 67.7%, or $1.7 million, to $4.3
million for the six months ended June 30, 1998 from $2.6 million for the
six months ended June 30, 1997. Excluding transaction costs occurring in
1997, the increase in operating income would have been $1.2 million, or
38.3%, for the six months ended June 30, 1998 from $3.1 million for the six
months ended June 30, 1997.
Net Interest Income (Expense). Net interest income of $338,000 for the
three months ended June 30, 1998 increased $440,000 from $102,000 of net
interest expense for the three months ended June 30, 1997. Net interest
income of $618,000 for the six months ended June 30 1998 increased $874,000
from $256,000 of net interest expense for the six months ended June 30,
1997. The increase in interest income and decrease in interest expense is
attributable to the investment of the proceeds received from the initial
public offerings of the Company's subsidiaries (which closed in November
1997 and August 1997 for BRHZ and CFAM, respectively) and the repayment of
approximately $8.0 million of debt with the proceeds from the respective
stock offerings.
Income Taxes Provision. The Company's effective income tax rate was
approximately 41% for the three months and six months ended June 30, 1998
and approximately 44% for the three and six months ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are the ongoing operations of its
existing centers and the addition of new centers through development or
acquisition. The Company's primary source of liquidity has been proceeds
from the initial public offerings and cash flow from operations. The
Company had working capital of $18.4 and $19.3 as of June 30, 1998 and
December 31, 1997, respectively.
Cash provided from operations increased to $8.5 million for the six months
ended June 30, 1998, from $4.9 million for the six months ended June 30,
1997. This increase was principally the result of higher levels of net
income, and the $1.7 million increase in deferred revenue associated with
(i) fees paid in advance during the six months ended June 30, 1998 for long
term priority enrollment rights in certain centers and (ii) for parent
tuition paid in advance. Such advances decreased $171,000 in the same
period of fiscal 1997.
Cash used in investing activities increased to $7.2 million for the six
months ended June 30, 1998 from $3.3 million for the six months ended June
30, 1997, principally due to $6.1 million of fixed asset additions and
leasehold improvements. Of the $6.1 million, approximately $3.0 million of
fixed asset additions relate to new family centers and the remainder
relates principally to the refurbishment of existing centers. Management
expects to maintain the current level of fixed asset spending through the
remainder of 1998.
-14-
15
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
Cash provided by (used in) financing activities increased to $841,000 for
the six months ended June 30, 1998, from $(721,000) for the six months
ended June 30, 1997. During the six months ended June 30, 1998, the Company
received $2.0 million in net proceeds from the issuance of common stock,
which was partially offset by the repurchase of shares of its common stock
which were reissued to fulfill warrant and stock option exercises. During
the six months ended June 30, 1997 the Company repaid $1.1 million of debt
and capital lease obligations, while incurring additional obligations of
$244,000.
Management believes that funds provided by operations and the net proceeds
from its subsidiaries' initial public offerings will be adequate to meet
planned operating and capital expenditure needs for at least the next 18
months. However, if the Company were to make any significant acquisitions
or make significant investments in the purchase of facilities for new or
existing centers for corporate sponsors, it may be necessary for the
Company to obtain additional debt or equity financing. There can be no
assurance that the Company would be able to obtain such financing on
reasonable terms, if at all.
INITIAL PUBLIC OFFERINGS
Pursuant to the Registration Statement on Form S-1, as amended
(Registration No. 333-29523) dated August 12, 1997, CFAM completed an
initial public offering of 2,702,500 shares of CFAM Common Stock, which
included the sale of 1,401,386 new shares of CFAM Common Stock, at a public
offering price of $10.00 per share. CFAM received total proceeds of
approximately $14.0 million and incurred expenses of approximately $981,000
for underwriting discounts and approximately $948,000 in other expenses
associated with the initial public offering. None of such payments were
made to CFAM's directors or officers or their affiliates or to any other
affiliate of CFAM. Accordingly, CFAM received net proceeds of approximately
$12.1 million, of which approximately $3.7 million were used to repay all
of CFAM's then outstanding bank borrowings. The managing underwriters for
the transaction were Montgomery Securities and J.C. Bradford & Co.
Pursuant to the Registration Statement on Form S-1, as amended,
(Registration No. 333-14981) dated November 6, 1997, BRHZ completed an
initial public offering of 3,415,500 shares of BRHZ Common Stock, of which
1,350,000 shares were issued and sold by BRHZ and 2,065,500 were sold by
the selling stockholders, at an offering price of $13.00 per share. BRHZ
received total proceeds of approximately $17.7 million and incurred
expenses of approximately $1.2 million for underwriting discounts and
approximately $720,000 in other expenses associated with the offering. BRHZ
used approximately $4.0 million of net proceeds to repay outstanding debt.
The managing underwriters for the transaction were BT Alex. Brown and
EVEREN Securities, Inc.
All shares of BRHZ Common Stock and CFAM Common Stock have been converted
into BFAM Common Stock pursuant to the exchange ratios discussed
previously.
-15-
16
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
YEAR 2000 CONVERSION
The Company is coordinating the identification, evaluation, and
implementation of changes to computer systems and applications necessary to
achieve a year 2000 date conversion with no effect on customers or
disruption to business operations. These actions are necessary to ensure
that the systems and applications will recognize and process the year 2000
and beyond. The Company is also evaluating non-system issues relative to
the year 2000 and beyond. As appropriate, the Company is communicating with
suppliers, customers, financial institutions and others with which it does
business to coordinate year 2000 conversion. Management does not anticipate
the total cost of compliance will have significant impact on the Company's
operations, cash flows or financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
-16-
17
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings: None
ITEM 2. Changes in Securities: None
ITEM 3. Defaults Upon Senior Securities: None
ITEM 4. Submission of Matters to a Vote of Security Holders: None
ITEM 5. Other information: None
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit 27 (for SEC use only)
(b) Reports on Form 8-K. The Company and its predecessors
pursuant to Rule 12g-3(c) of the Securities Exchange Act
of 1934, as amended, made the following filings:
(1) CorporateFamily Solutions, Inc. filed a Current
Report on Form 8-K on April 28, 1998 relating to the
execution of the agreement and plan of merger between
Bright Horizons, Inc. and Corporate Family Solutions,
Inc. on April 26, 1998.
(2) Bright Horizons, Inc. filed a Current Report on Form
8-K on April 29, 1998 relating to the execution of
the agreement and plan of merger between Bright
Horizons, Inc. and Corporate Family Solutions, Inc.
on April 26, 1998.
(3) The Company filed a Current Report on Form 8-K on
July 28, 1998, relating to the consummation of the
merger by and among Bright Horizons Family Solutions,
Inc., Bright Horizons, Inc., BRHZ Acquisition, Inc.,
CorporateFamily Solutions, Inc. and CFAM Acquisition,
Inc. on July 24, 1998.
(4) The Company filed a Current Report on Form 8-K on
August 14, 1998 reporting the operating results of
the Company for the month ended July 31, 1998.
-17-
18
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized:
Date: August 14, 1998
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
By:/s/ Michael E. Hogrefe
---------------------------------------
Michael E. Hogrefe
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
-18-
19
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
EXHIBIT INDEX
27 Financial Data Schedule (for Commission use only)
-19-